Why are surprise audits considered effective in fraud detection?

Surprise audits are considered effective in fraud detection primarily because they prevent record alterations. When employees are aware that an audit may take place without prior notification, they are less likely to modify or falsify records to hide fraudulent activities. The unpredictability of surprise audits acts as a strong deterrent against potential fraudulent behavior, as employees realize they cannot prepare or cover up their actions in advance.

Regularly scheduled audits (which are not unannounced) can allow individuals to engage in misconduct more brazenly, knowing when they will be scrutinized. By the time a scheduled audit occurs, they might have had the opportunity to alter records or hide evidence of wrongdoing. In contrast, the element of surprise catches them off guard, thereby preserving the integrity of the financial records and providing a more accurate picture of the organization's operations.

Thus, the essence of surprise audits lies in their capacity to instill a sense of unpredictability and accountability among employees, significantly enhancing the detection of fraud.